What does a capital gain refer to?

A capital gain refers to the increase in the value of an asset or investment when it is sold for more than its purchase price. This concept is essential in the realm of investing and finance, as it represents the profit earned from the appreciation of an asset's value over time. For instance, if an investor buys a stock for $50 and later sells it for $70, the capital gain would be $20. Understanding capital gains is crucial for investors, as it directly impacts their financial returns and the potential taxes owed on those gains when assets are sold.

The other options do not accurately represent capital gains. A decrease in value relates to capital losses, which occur when an asset is sold for less than its purchase price. A tax applied to estate value pertains to estate taxes and is unrelated to capital gains. Finally, the payment made to shareholders from profits refers to dividends, which are distinct from capital gains and represent a company's method of distributing earnings to its shareholders.